Tuesday, December 16, 2008

Nothing a little chemo won't help

From VDH:


Unemployment is still below 7%. Inflation is low. So are interest rates. GDP did not go negative by much in the last quarter. The point is that we are not yet in an era of 1929-39 by any means.

There are enormous natural stimuli underway: in 2009 over a trillion dollars in national fuel savings will occur if energy prices stay below $50 a barrel. Indeed, they may drop even further, given slack world demand and enormous efforts at new discoveries the last five years. The price of housing is approaching, or indeed in some places below, the actual cost of replacement; so we may see millions of first-time buyers find their initial homes affordable in a way that had not been true in a quarter-century.

As bad as the condition that confronts the US, we are better off than most others. The EU owes $5 trillion in debt abroad, most of it uncollectible. Its members are at each other’s throats; higher unemployment and static demographics ensure there is not to be likely as much resilience and rebound as here in the US.

Russia, Venezuela, and Iran—as one-trick-pony oil exporters—are going broke and lowering their global mischievous profile. China is paranoid that its exports are ossifying when they must grow at 10% per annum if millions of new workers are to be incorporated into the work force. China has a multi-trillion-dollar rendezvous with unionization, environmentalism, suburban blues, and massive inputs in infrastructure.

Rather than look simply at our own dismal fiscal stats, instead, ask more germane philosophical questions: which country is more likely to remain politically stable during the global upheaval? Who encourages advancement more through meritocracy rather than nepotism or class and tribal affiliations? What nation will be the least likely to sink into work stoppages, religious and racial sectarianism, and violence? What country does foreign capital seek out to ensure safety in these unsettled times? Where are new ideas and products meeting the lesser resistance and accorded the greater compensation?

I think, in fairness, the US stands alone in most of the above categories that ultimately translate into superior economic growth. What we are seeing is a sort of global chemotherapy almost spontaneously occurring to destroy the cancer of speculation, fraud, huge borrowing, and creative accounting and to restore trust into the system. This naturally toxic medicine of deflation, doubt, timidity, and regulation may destroy some hosts, even as it takes out the cancer that started on September 14. Yet the US is in the best position to survive the toxicity and emerge on the other side of the treatment in remission and healthy.

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